ESAB Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the financial condition and results of operations of ESAB Corporation (“ESAB,” the “Company,” “we,” “our” and “us”) should be read in conjunction with the Consolidated and Condensed Financial Statements and related footnotes included in Part I. Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended September 27, 2024 (this “Form 10-Q”) and the Consolidated Financial Statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “ 2023 Form 10-K ”). You should review the discussion titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements. Our actual results, outcomes or the timing of results or outcomes could differ materially from those discussed in the forward looking statements. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS All statements contained in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the Securities and Exchange Commission (the “SEC”). Statements that could be deemed to be forward-looking statements, include statements regarding: the impact of the wars in Ukraine and the Middle East and the resulting escalating geopolitical tensions on our business; projections of revenue, profit margins, expenses, tax provisions and tax rates, earnings or losses from operations, impact of foreign exchange rates, cash flows, pension and benefit obligations and funding requirements, synergies or other financial items; plans, strategies and objectives of our management for future operations, including statements relating to potential acquisitions, compensation plans or purchase commitments; developments, performance, industry or market rankings relating to products or services; future economic conditions or performance, including the impact of inflationary pressures, foreign exchange fluctuations and commodity prices; the outcome of outstanding claims or legal proceedings, including asbestos-related liabilities and insurance coverage litigation; potential gains and recoveries of costs; assumptions underlying any of the foregoing; and any other statement that addresses activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. Forward-looking statements may be, but are not always, characterized by terminology such as “believe,” “anticipate,” “should,” “would,” “could,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “targets,” “aims,” “seeks,” “sees” or similar expressions. These statements are based on assumptions and assessments made by our management as of the filing date of this Form 10-Q in light of their experience and perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties and actual results or outcomes, or the timing of results or outcomes, could differ materially due to numerous factors, including but not limited to the following: • the wars in Ukraine and the Middle East, escalating geopolitical tensions and the related impact on energy supplies and prices; • changes in the general economy, including disruptions caused by geopolitical conflicts, as well as the cyclical nature of the markets we serve; • supply chain constraints and backlogs, including risks affecting raw material, part and component availability, labor shortages and inefficiencies, freight and logistical challenges and inflation in raw material, part, component, freight and delivery costs and our ability to increase our prices to account for increased costs; • volatility in the commodity markets and certain commodity prices, including oil and steel; • our ability to identify, finance, acquire and successfully integrate attractive acquisition targets; • our exposure to unanticipated liabilities resulting from acquisitions; • significant movements in foreign currency exchange rates or inflation rates; • the impact of natural or man-made disasters, adverse or extreme weather events or conditions, epidemics, pandemics and other global health events; 24 • our ability and the ability of our customers to access required capital at a reasonable cost; • our ability to accurately estimate the cost of or realize savings from our restructuring programs; • the amount of, a nd our ability to estimate and manage, our asbestos-related liabilities; • the solvency of our insurers and the likelihood of their payment for asbestos-related costs; • material disruptions at any of our manufacturing facilities; • noncompliance with various laws and regulations associated with our international operations, including anti-bribery laws, export control regulations and sanctions and embargoes; • risks associated with our international operations, including risks from trade protection measures and other changes in trade relations; • risks associated with the representation of our employees by trade unions and works councils; • our exposure to product liability claims; • potential costs and liabilities associated with environmental, health and safety laws and regulations; • failure to maintain, protect and defend our intellectual property rights; • our ability to attract and retain our employees, including the loss of key members of our leadership team; • restrictions in our financing arrangements that may limit our flexibility in operating our business; • impairment in the value of intangible assets; • the funding requirements or obligations of our defined benefit pension plans and other postretirement benefit plans; • new regulations and customer preferences reflecting an increased focus on environmental, social and governance issues, including regulations related to climate change and the use of conflict minerals; • service interruptions, data corruption, cyber-based attacks or network security breaches affecting our electronic information systems; • risks arising from changes in technology; • the competitive environment in our industries; • changes in our tax rates, realizability of deferred tax assets or exposure to additional income tax liabilities; • our ability to manage and grow our business and execution of our business and growth strategies; • the level of capital investment and expenditures by our customers in our strategic markets; • our financial performance; • difficulties and delays in integrating or fully realizing projected cost savings and benefits of our acquisitions; and • other risks and factors set forth under “Risk Factors” in Part I. Item 1A. in our 2023 Form 10-K. See Part I. Item 1.A. “Risk Factors” in our 2023 Form 10-K for a further discussion regarding reasons that actual results and outcomes, and the timing of results and outcomes, may differ materially from the results, developments and business 25 decisions contemplated by our forward-looking statements. Forward-looking statements speak only as of the date this Form 10-Q. We do not assume any obligation to update or revise any forward-looking statement, whether because of new information, future events and developments or otherwise. Overview Please see Part I. Item 1. “Business” in our 2023 Form 10-K, for a discussion of ESAB’s objectives and methodologies for deliver ing stockholder va lue. General We are a focused premier industrial compounder. Our rich history of innovative products, workflow solutions and our business system, ESAB Business Excellence (“EBX”), enables our purpose of Shaping the world we imagine TM . We conduct our operations through two reportable segments. These segments consist of the “Americas,” which includes operations in North America and South America, and “EMEA & APAC,” which includes Europe, Middle East, India, Africa and Asia Pacific. We serve a global customer base across multiple markets through a combination of direct sales and third-party distribution channels. Our customer base is highly diversified in the industrial end markets. Integral to our operations is EBX. EBX is our culture and includes our values, a comprehensive set of tools and repeatable, teachable processes that we use to drive continuous improvement and create superior value for our customers, stockholders and associates. We believe that our management team’s access to, and experience in, the application of the EBX methodology is one of our primary competitive strengths. Outlook We believe that we are well positioned to grow our businesses organically over the long term by enhancing our product offerings and expanding our customer base. We believe our business mix is well balanced between sales in high growth and developed markets, and equipment and consumables. We believe our geographic and end market diversity helps mitigate the effects from cyclical industrial market exposures. Given this balance, management does not use indices other than general economic trends and business initiatives to predict the overall outlook for the Company. Instead, our individual businesses monitor key competitors and customers, including to the extent possible their sales, to gauge relative performance and outlook for the future. We expect strategic acquisitions to contribute to our growth. We believe that our extensive experience of acquiring and effectively integrating acquisition targets should enable us to capitalize on future opportunities. We believe that the recent acquisitions of Linde Industries Private Limited (“Linde Industries”) on July 2, 2024, Sager S.A. on February 26, 2024 and Therapy Equipment Limited (“Therapy Equipment”) on January 11, 2023 as well as the April 30, 2024 agreement to acquire SUMIG Soluções para Solda e Corte Ltda are aligned with this strategic direction. Refer to Note 3, “Acquisitions” in the accompanying Notes contained elsewhere in this Form 10-Q for additional information. The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the three and nine months ended September 27, 2024 and September 29, 2023. 26 Results of Operations The following discussion of our Results of Operations addresses the comparison of the periods presented. Our management evaluates the operating results of each of its reportable segments based upon Net sales, Adjusted EBITDA and Core adjusted EBITDA as defined in the “Non-GAAP Measures” section. Items Affecting Comparability of Reported Results The comparability of our operating results for the three and nine months ended September 27, 2024 and September 29, 2023 is affected by the following significant factors: Russia and Ukraine conflict The invasion of Ukraine by Russia and the sanctions and other actions taken by governments in response to this crisis have increased the level of economic and political uncertainty. Refer to Note 1, “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-Q as well as Part I. Item 1.A. “Risk Factors” section of the 2023 Form 10-K for additional information. Acquisitions We complement our organic growth with acquisitions and other investments. Acquisitions can affect our reported results, and we report the change in our Net sales between periods both from existing and acquired businesses. The change in Net sales due to acquisitions for the periods presented in this filing represents the incremental sales as a result of acquisitions. On July 2, 2024, the Company completed the acquisition of Linde Industries, a leading welding company in Bangladesh. On February 26, 2024, the Company completed the acquisition of Sager S.A., a welding repair and maintenance product and service leader in South America. During the first quarter of 2023, the Company completed the acquisition of Therapy Equipment, a regional leader in oxygen regulators. For additional information on these acquisitions, refer to Note 3, “Acquisitions” in the accompanying Notes contained elsewhere in this Form 10-Q. Foreign Currency Fluctuations A significant portion of our Net sales, 79% and 78% , for the three and nine months ended September 27, 2024, respectively, are outside the United States, with the majority of those sales denominated in currencies other than the U.S. Dollar. Because much of our manufacturing and employee costs are outside the United States, a significant portion of our costs are also denominated in currencies other than the U.S. Dollar. Changes in foreign exchange rates can impact our results of operations and are quantified when significant. For the three months ended September 27, 2024 compared to the three months ended September 29, 2023, fluctuations in foreign currencies reduced Net sal es by 3.1% and Gross profit by 3.6% and Selling, general and administrative expenses by 1.6%. For the nine months ended September 27, 2024 compared to the nine months ended September 29, 2023 , fluctuations in foreign currencies reduced Net sal es by 2.7% and Gross profit by 3.0% and Selling, general and administrative expenses by 1.0%. Seasonality Our European operations typically experience a slowdown during the July and August vacation seasons. Non-GAAP Measures Adjusted EBITDA is a non-GAAP performance measure that we include in this Form 10-Q because it is a key metric used by our management to assess our operating performance. ESAB presents this non-GAAP financial measure including and excluding Russia due to economic and political volatility caused by the Russia and Ukraine conflict, which we believe results in enhanced investor interest in these alternative presentations. Adjusted EBITDA excludes from Net income from continuing operations the effect of Income tax expense, Interest expense and other, net, Pension settlement loss, Restructuring and other 27 related charges, acquisition-amortization and other related charges and depreciation and other amortization. We also present Adjusted EBITDA margin, which is subject to the same adjustments as Adjusted EBITDA. Further, we present these non-GAAP performance measures on a segment basis, where we exclude the impact of Restructuring and other related charges, acquisition-amortization and other related charges and depreciation and other amortization from operating income. We also present Core adjusted EBITDA and Core adjusted EBITDA margin, which are subject to the same adjustments as Adjusted EBITDA and Adjusted EBITDA margin, respectively, and which removes the impact of Russia for the three and nine months ended September 27, 2024 and September 29, 2023. Adjusted EBITDA and Core adjusted EBITDA assist management in comparing our operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to unusual events or discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity and core business. Management also believes that presenting these measures allows investors to view our performance using the same measures that we use in evaluating our financial and business performance and trends. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with the accounting principles generally accepted in the United States (“U.S. GAAP”). Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable U.S. GAAP financial measures. The following tables set forth a reconciliation of Net income from continuing operations, the most directly comparable GAAP financial measure, to Adjusted EBITDA, Adjusted EBITDA margin, Core adjusted EBITDA and Core adjusted EBITDA margin by segment for the three and nine months ended September 27, 2024 and September 29, 2023. Three Months Ended September 27, 2024 Nine Months Ended September 27, 2024 Americas EMEA & APAC Total Americas EMEA & APAC Total (Dollars in millions) (1) Net income from continuing operations (GAAP) $ 71.0 $ 219.5 Income tax expense 18.1 54.5 Interest expense and other, net 16.9 49.9 Pension settlement loss — 12.2 Operating income (GAAP) (1) $ 49.9 $ 56.1 $ 106.0 $ 151.8 $ 184.3 $ 336.0 Adjusted to add: Restructuring and other related charges (2) 0.9 1.0 1.9 2.0 6.6 8.6 Acquisition-amortization and other related charges (3) 4.8 5.2 10.0 13.5 12.1 25.6 Depreciation and other amortization 3.8 5.7 9.5 10.9 16.5 27.4 Adjusted EBITDA (non-GAAP) (1) $ 59.4 $ 68.1 $ 127.4 $ 178.2 $ 219.4 $ 397.5 Adjusted EBITDA attributable to Russia (non-GAAP) (4) — 2.6 2.6 — 15.5 15.5 Core adjusted EBITDA (non-GAAP) (1) $ 59.4 $ 65.5 $ 124.8 $ 178.2 $ 203.9 $ 382.1 Adjusted EBITDA margin (non-GAAP) 20.6 % 17.7 % 18.9 % 19.9 % 18.7 % 19.2 % Core adjusted EBITDA margin (non-GAAP) (5) 20.6 % 18.9 % 19.6 % 19.9 % 19.2 % 19.5 % (1) Numbers may not sum due to rounding. (2) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, impairment of long-lived assets and other costs in connection with the closure and optimization of facilities and product lines. (3) Includes transaction expenses, amortization of acquired intangibles, fair value charges on acquired inventories and integration expenses. (4) Numbers calculated following the same definition as Adjusted EBITDA for total Company. (5) Net sales wer e $37.7 million and $112.0 million relating to Russia for the three and nine months ended September 27, 2024, respectively . 28 Three Months Ended September 29, 2023 Nine Months Ended September 29, 2023 Americas EMEA & APAC Total Americas EMEA & APAC Total (Dollars in millions) (1) Net income from continuing operations (GAAP) $ 60.8 $ 163.8 Income tax expense 19.8 77.8 Interest expense and other, net 20.5 58.8 Operating income (GAAP) $ 46.5 $ 54.7 $ 101.1 $ 132.4 $ 168.0 $ 300.4 Adjusted to add: Restructuring and other related charges (2) 1.6 1.6 3.1 5.4 12.3 17.7 Acquisition-amortization and other related charges (3) 5.2 4.0 9.3 16.0 11.9 27.8 Depreciation and other amortization 3.9 5.0 9.0 11.1 15.5 26.6 Adjusted EBITDA (non-GAAP) $ 57.2 $ 65.3 $ 122.5 $ 164.9 $ 207.7 $ 372.6 Adjusted EBITDA attributable to Russia (non-GAAP) (4) — 4.7 4.7 — 15.7 15.7 Core adjusted EBITDA (non-GAAP) $ 57.2 $ 60.6 $ 117.8 $ 164.9 $ 192.0 $ 356.9 Adjusted EBITDA margin (non-GAAP) 18.7 % 17.4 % 18.0 % 18.2 % 17.6 % 17.9 % Core adjusted EBITDA margin (non-GAAP) (5) 18.7 % 17.9 % 18.3 % 18.2 % 18.1 % 18.1 % (1) Numbers may not sum due to rounding. (2) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination expenses, impairment of long-lived assets and other costs in connection with the closure and optimization of facilities and product lines. (3) Includes transaction expenses, amortization of intangibles, fair value charges on acquired inventories and integration expenses. (4) Numbers calculated following the same definition as Adjusted EBITDA for total Company. (5) Net sales were $36.9 million and $114.4 million relating to Russia for the three and nine months ended September 29, 2023, respectively. Total Company Sales Net sales decreased for th e three and nine months ended September 27, 2024, compared to the prior year period . The following table presents the components of changes in our Net sales. Three Months Ended Nine Months Ended Net Sales Change % Net Sales Change % (Dollars in millions) For the three and nine months ended September 29, 2023 $ 681.0 $ 2,085.4 Components of Change: Existing businesses (organic sales growth) (1) 6.6 1.0 % 31.6 1.5 % Acquisitions (2) 6.6 1.0 % 10.3 0.5 % Foreign currency translation (3) (20.9) (3.1) % (57.3) (2.7) % Total sales growth (7.7) (1.1) % (15.4) (0.7) % For the three and nine months ended September 27, 2024 $ 673.3 $ 2,070.0 (1) Excludes the impact of acquisitions and foreign exchange rate fluctuations, thus providing a measure of change due to organic growth factors such as price, product mix and volume. (2) Represents the incremental sales in comparison to the portion of the prior period during which we did not own the business. (3) Represents the difference between prior year sales valued at the actual prior year foreign exchange rates and prior year sales valued at current year foreign exchange rates. Net sales from existing businesses increased $6.6 million during the three months ended September 27, 2024, compared to the prior year period, due to customer pricing increases of $8.7 million that was partially offset by a $2.1 million decrease in sales volumes. The increase in net sales from acquisitions was attributable to Sager S.A. and Linde Industries. The changes in foreign exchange rates caused a $20.9 million unfavorable currency translation impact. 29 Net sales from existing businesses increased $31.6 million during the nine months ended September 27, 2024, compared to the prior year period, due to an increase in sales volumes of $14.6 million and customer pricing increases of $17.0 million. The increase in net sales from acquisitions was attributable to Therapy Equipment, Sager S.A. and Linde Industries. The changes in foreign exchange rates caused a $57.3 million unfavorable currency translation impact. Sales excluding Russia Sales excluding Russia (“Core Sales”) decreased for the three and nine months ended September 27, 2024, compared to the prior year period. The following table presents the components of changes in our Core Sales. Three Months Ended Nine Months Ended Core Sales (5) Change % (1) Core Sales (1)(5) Change % (Dollars in millions) For the three and nine months ended September 29, 2023 $ 644.1 $ 1,971.0 Components of Change: Existing businesses (core organic sales growth) (2) 8.0 1.2 % 24.9 1.3 % Acquisitions (3) 6.6 1.0 % 10.3 0.5 % Foreign currency translation (4) (23.1) (3.6) % (48.3) (2.5) % Total core sales growth (8.5) (1.3) % (13.1) (0.7) % For the three and nine months ended September 27, 2024 $ 635.6 $ 1,958.0 (1) Numbers may not sum due to rounding. (2) Excludes the impact of acquisitions and foreign exchange rate fluctuations, thus providing a measure of change due to organic growth factors such as price, product mix and volume. (3) Represents the incremental sales in comparison to the portion of the prior period during which we did not own the business. (4) Represents the difference between prior year sales valued at the actual prior year foreign exchange rates and prior year sales valued at current year foreign exchange rates. (5) Net sales relating to Russia were $37.7 million and $112.0 million for the three and nine months ended September 27, 2024, respectively, and $36.9 million and $114.4 million for the three and nine months ended September 29, 2023, respectively. Core Sales from existing businesses increased $8.0 million during the three months ended September 27, 2024 compared to the prior year period primarily due to customer pricing increases of $8.3 million partially offset by a $0.3 million decrease in sales volume. The $6.6 million increase in net sales from acquisitions was attributable to Sager S.A. and Linde Industries. The changes in foreign exchange rates caused a $23.1 million unfavorable currency translation impact. Core Sales from existing businesses increased $24.9 million during the nine months ended September 27, 2024 compared to the prior year period primarily due to an increase in sales volume of $12.4 million and customer pricing increases of $12.5 million. The increase in net sales from acquisitions was attributable to Therapy Equipment, Sager S.A. and Linde Industries. The changes in foreign exchange rates caused a $48.3 million unfavorable currency translation impact. 30 Operating Results The following table summarizes our results for the comparable periods. Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (Dollars in millions) Gross profit $ 253.8 $ 249.7 $ 779.1 $ 761.0 Gross profit margin 37.7 % 36.7 % 37.6 % 36.5 % Selling, general and administrative expense $ 145.9 $ 145.4 $ 434.5 $ 442.8 Net income from continuing operations $ 71.0 $ 60.8 $ 219.5 $ 163.8 Net income margin from continuing operations 10.6 % 8.9 % 10.6 % 7.9 % Adjusted EBITDA (non-GAAP) $ 127.4 $ 122.5 $ 397.5 $ 372.6 Adjusted EBITDA margin (non-GAAP) 18.9 % 18.0 % 19.2 % 17.9 % Core adjusted EBITDA (non-GAAP) $ 124.8 $ 117.8 $ 382.1 $ 356.9 Core adjusted EBITDA margin (non-GAAP) 19.6 % 18.3 % 19.5 % 18.1 % Items excluded from Adjusted EBITDA: Restructuring and other related charges (1) $ 1.9 $ 3.1 $ 8.6 $ 17.7 Acquisition-amortization and other related charges (2) 10.0 9.3 25.6 27.8 Interest expense and other, net 16.9 20.5 49.9 58.8 Income tax expense 18.1 19.8 54.5 77.8 Pension settlement loss — — 12.2 — Depreciation and other amortization 9.5 9.0 27.4 26.6 Items excluded from Core adjusted EBITDA: Adjusted EBITDA attributable to Russia (non-GAAP) (3) $ 2.6 $ 4.7 $ 15.5 $ 15.7 (1) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination, impairment of long-lived assets and other costs in connection with the closure of and optimization of facilities and product lines. (2) Includes transaction expenses, amortization of intangibles, fair value charges on acquired inventories and integration expenses. (3) Numbers calculated following the same definition as Adjusted EBITDA for total Company. Third Quarter of 2024 Compared to Third Quarter of 2023 Gross profit increased $4.1 million in the third quarter of 2024, with gross profit margin expanding 100 basis points compared with the prior year period. This increase was primarily attributable to customer pricing, lower material costs and favorable product mix partially offset by unfavorable currency translation. Selling, general and administrative expense remained relatively consistent in the third quarter of 2024 compared to the prior year period. The effective tax rate of 20.3 % for the quarter ended September 27, 2024 differed from the effective tax rate of 24.6 % for the same period ended September 29, 2023 due to an agreement with a tax authority on the treatment of subsidy income in a foreign jurisdiction in 2024. Net income from continuing operations increased $10.2 million in the third quarter of 2024 compared with the prior year period primarily due to the aforementioned factors as well as lower interest expense. Net income margin from continuing operations increased by 170 basis points due to the aforementioned factors. In the third quarter of 2024, Adjusted EBITDA increased $4.9 million and Adjusted EBITDA margin increased by 90 basis points compared to the same period in 2023 benefiting from higher Gross profit. Core adjusted EBITDA increased $7.0 million, and Core adjusted EBITDA margin expanded by 130 basis points compared to the same period in 2023. 31 Nine Months Ended September 27, 2024 Compared to Nine Months Ended September 29, 2023 Gross profit increased $18.1 million in the nine months ended September 27, 2024, with gross profit margin expanding 110 basis points compared with the prior year period. This increase was primarily attributable to benefits from customer pricing and lower material costs partially offset by unfavorable currency translation. Selling, general and administrative expense decreased $8.3 million in the nine months ended September 27, 2024, compared to the prior year period. This decrease was primarily driven by savings from restructuring initiatives and currency translation. The effective tax rate of 19.9 % for the nine months ended September 27, 2024 differed from the effective tax rate of 32.2% for the same period ending September 29, 2023 due to discrete tax adjustments in 2023 for dividend withholding taxes and an increase in unrecognized tax benefits due to an adverse court ruling in a tax case in a foreign jurisdiction and discrete tax adjustments in 2024 for a favorable final ruling in a tax case in a foreign jurisdiction and an agreement with a taxing authority on the treatment of subsidy income in a foreign jurisdiction in 2024. Net income from continuing operations increased $55.7 million in the nine months ended September 27, 2024 compared with the prior year period primarily due to the aforementioned factors as well as lower interest and income tax expenses. Net income margin from continuing operations increased by 270 basis points due to the aforementioned factors. In the nine months ended September 27, 2024, Adjusted EBITDA increased $24.9 million and Adjusted EBITDA margin increased by 130 basis points compared to the same period in 2023 benefiting from higher Gross profit and lower Selling, general and administrative expense. In the nine months ended September 27, 2024, Core adjusted EBITDA increased by $25.2 million and Core adjusted EBITDA margin expanded by 140 basis points. Business Segments We formulate, develop, manufacture and supply consumable products and equipment, including cutting, joining and welding robotics, as well as gas control equipment. Our products are marketed under several brand names, most notably ESAB, providing a wide range of products with innovative technologies to solve challenges in virtually any industry. ESAB’s comprehensive range of welding consumables includes electrodes, cored and solid wires and fluxes using a wide range of specialty and other materials, and cutting consumables including electrodes, nozzles, shields and tips. ESAB’s equipment ranges from portable welding machines, gas control equipment and customized automated cutting and welding systems. ESAB also offers a range of software and digital solutions to help its customers increase their productivity, remotely monitor their welding operations and digitize their documentation. Products are sold into a wide range of end markets, including general industry, infrastructure, renewable energy, medical and life sciences, transportation, construction and energy. We report results in two reportable segments: Americas and EMEA & APAC. Americas The following table summarizes selected financial data for our Americas segment: Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (Dollars in millions) Net sales $ 288.8 $ 305.8 $ 894.6 $ 907.7 Gross profit $ 114.4 $ 116.0 $ 348.3 $ 336.9 Gross profit margin 39.6 % 37.9 % 38.9 % 37.1 % Selling, general and administrative expense $ 62.7 $ 68.0 $ 193.4 $ 199.0 Adjusted EBITDA (non-GAAP) $ 59.4 $ 57.2 $ 178.2 $ 164.9 Adjusted EBITDA margin (non-GAAP) 20.6 % 18.7 % 19.9 % 18.2 % Items excluded from Adjusted EBITDA: Restructuring and other related charges $ 0.9 $ 1.6 $ 2.0 $ 5.4 Acquisition - amortization and other related charges 4.8 5.2 13.5 16.0 Depreciation and other amortization $ 3.8 $ 3.9 $ 10.9 $ 11.1 32 Third Quarter of 2024 Compared to Third Quarter of 2023 Net sales in our Americas segment decreased $17.0 million in the third quarter of 2024 compared with the prior year period. Net sales from existing business increased $6.2 million primarily due to pricing increases, which was more than offset by $26.0 million in unfavorable currency translation. The acquisition of Sager S.A. contributed a $2.8 million increase to Net sales from acquisitions. Despite lower sales, Gross profit remained relatively consistent with the same period in the prior year due to customer pricing increases, lower material costs and EBX driven business improvements that also expanded Gross profit margin by 170 basis points. Selling, general and administrative expense decreased by $5.3 million primarily due to savings from restructuring initiatives and currency translation. Adjusted EBITDA increased $2.2 million and Adjusted EBITDA margin expanded 190 basis points primarily due to the aforementioned factors. Nine Months Ended September 27, 2024 Compared to Nine Months Ended September 29, 2023 Net sales in our Americas segment decreased $13.0 million in the nine months ended September 27, 2024 compared with the prior year period. Net sales from existing business increased $27.6 million, which was more than offset by $47.0 million in unfavorable currency translation. The increase in Net sales from existing business was primarily due to customer pricing increases, partially offset by a decrease in sales volumes. The Sager S.A. acquisition contributed to $6.4 million of the overall sales increase. Gross profit increased $11.4 million and Gross profit margin increased 180 basis points due to price increases, benefits from EBX driven business improvements and the Sager S.A. acquisition, partially offset by an unfavorable currency impact. Selling, general and administrative expense decreased by $5.6 million primarily due to savings from restructuring initiatives and currency translation. Adjusted EBITDA increased $13.3 million and Adjusted EBITDA margin expanded 170 basis points primarily because of the aforementioned factors. EMEA & APAC The following table summarizes the selected financial data for our EMEA & APAC segment: Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (Dollars in millions) Net sales $ 384.4 $ 375.2 $ 1,175.4 $ 1,177.8 Gross profit $ 139.4 $ 133.7 $ 430.8 $ 424.1 Gross profit margin 36.3 % 35.6 % 36.7 % 36.0 % Selling, general and administrative expense $ 80.7 $ 77.4 $ 238.0 $ 243.8 Adjusted EBITDA (non-GAAP) $ 68.1 $ 65.3 $ 219.4 $ 207.7 Adjusted EBITDA margin (non-GAAP) 17.7 % 17.4 % 18.7 % 17.6 % Core adjusted EBITDA (non-GAAP) $ 65.5 $ 60.6 $ 203.9 $ 192.0 Core adjusted EBITDA margin (non-GAAP) 18.9 % 17.9 % 19.2 % 18.1 % Items excluded from Adjusted EBITDA: Restructuring and other related charges $ 1.0 $ 1.6 $ 6.6 $ 12.3 Acquisition - amortization and other related charges 5.2 4.0 12.1 11.9 Pension settlement loss — — 12.2 — Depreciation and other amortization 5.7 5.0 16.5 15.5 Items excluded from Core adjusted EBITDA: Adjusted EBITDA attributable to Russia (non-GAAP) $ 2.6 $ 4.7 $ 15.5 $ 15.7 Third Quarter of 2024 Compared to Third Quarter of 2023 Net sales increased for our EMEA & APAC segment by $9.3 million in the third quarter of 2024 compared with the prior year period. This increase was primarily due to an increase in Net sales from existing business of $0.4 million, a $3.8 million increase related to the acquisition of Linde Industries and a $5.1 million favorable currency translation. Gross profit increased $5.7 million in the third quarter of 2024 compared with the prior year period primarily due to improved product mix and lower material costs partially offset by lower pricing. Gross profit margin expanded 70 basis points compared to the same period in 2023 primarily due to improved product mix, lower material costs and EBX driven business improvements. Selling, general and administrative expense remained relatively consistent compared to the same period in 2023. Adjusted EBITDA increased $2.8 33 million and Adjusted EBITDA margin expanded 30 basis points and Core adjusted EBITDA increased to $65.5 million and the related Core adjusted EBITDA margin expanded 100 basis points primarily because of the aforementioned factors. Nine Months Ended September 27, 2024 Compared to Nine Months Ended September 29, 2023 Net sales in our EMEA & APAC segment decreased $2.4 million in the nine months ended September 27, 2024 compared with the prior year period. Net sales from existing business increased $4.0 million, with the Therapy Equipment and Linde Industries acquisitions contributing an additional increase of $3.9 million. These increases were offset by $10.3 million in unfavorable currency translation. The increase in Net sales from existing business was primarily due to an increase in sales volumes partially offset by decreases in customer pricing. Gross profit and Gross profit margin increased $6.7 million and 70 basis points, respectively, due to EBX driven business improvements, lower material costs and improved product mix partially offset by an unfavorable currency impact. Selling, general and administrative expense decreased $5.8 million primarily due to savings from restructuring initiatives. Adjusted EBITDA increased $11.7 million and Adjusted EBITDA margin expanded 110 basis points and Core adjusted EBITDA increased to $203.9 million and Core adjusted EBITDA margin expanded 110 basis points primarily because of the aforementioned factors. 34 Liquidity and Capital Resources Overview We expect to finance our working capital requirements through cash flows from operating activities. We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, capital expenditures and restructuring related cash outflows, asbestos-related cash outflows, debt service and required amortization of principal, stock repurchase and, pending approval from the Board of Directors, payment of cash dividends. As of September 27, 2024, we were in compliance with the covenants under the Credit Agreement and the Company’s weighted average interest rate of Debt was 5.01%, excluding accretion of deferred financing fees and net of interest rate hedge impacts. As of the end of the third quarter, we had the capacity for additional indebtedness of up to $750 million available on the Revolving Facility, subject to meeting financial covenants and other requirements. Additionally, we have the ability to incur $50.0 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that we have used from time to time in the past for short-term working capital needs. Refer to Note 10, “Debt” and Note 11, “Derivatives” in the accompanying Notes contained elsewhere in this Form 10-Q for more information related to the Facilities and derivative instruments. We believe that we could raise additional funds in the form of debt or equity if it were determined to be appropriate for strategic acquisitions or other corporate purposes. We believe that our sources of liquidity between debt and cash flows from operating activities are adequate to fund our operations for the next twelve months and thereafter. Stock Repurchase Program On August 13, 2024, the Board of Directors authorized and approved a stock repurchase program to repurchase up to five million shares of the Company’s Common stock, par value $0.001 per share, from time-to-time on the open market, in privately negotiated transactions or as may otherwise be determined by the Company’s management in its discretion. No repurchases of the Company’s Common stock have been made through the nine months ended September 27, 2024. The timing and amount of any shares repurchased will be determined by the Company’s management based on its evaluation of market conditions, applicable legal requirements and other factors. There is no term associated with the remaining repurchase authorization. Cash Flows As of September 27, 2024, we had $253.7 million of Cash and cash equivalents, an increase of $151.7 million from the balance of $102.0 million as of December 31, 2023. 35 The following table summarizes the change in Cash and cash equivalents during periods indicated: Nine Months Ended September 27, 2024 September 29, 2023 (Dollars in millions) (1) Net cash provided by operating activities $ 228.5 $ 208.1 Purchases of property, plant and equipment (27.1) (28.9) Proceeds from sale of property, plant and equipment 3.5 5.2 Acquisitions, net of cash received (86.5) (18.7) Other investing (4.1) — Net cash used in investing activities (114.2) (42.4) Proceeds from borrowings on Senior Notes 700.0 — Proceeds from borrowings on revolving credit facility and other 205.0 454.7 Repayments of borrowings on Term Loans (597.5) (6.3) Repayments of borrowings on revolving credit facility and other (236.6) (578.6) Payment of debt issuance costs and other (15.5) — Payment of dividends (12.1) (9.7) Distributions to noncontrolling interest holders (2.6) (2.3) Net cash provided by (used in) financing activities 40.6 (142.2) Effect of foreign exchange rates on Cash and cash equivalents (3.2) (12.7) Increase in Cash and cash equivalents $ 151.7 $ 10.8 (1) Numbers may not sum due to rounding. Cash flows from operating activities can fluctuate significantly from period to period due to changes in working capital and the timing of payments for items such as pension funding, asbestos-related costs and restructuring program funding. Changes in significant operating cash flow items are discussed below. • Operating cash flow was positively impacted by increased operating income for the nine months ended September 27, 2024, partially offset by higher working capital to support growth. • Discontinued operations for the nine months ended September 27, 2024 and September 29, 2023 included outflows of $12.1 million and $12.2 million, respectively, which were mainly asbestos-related. • Restructuring initiative payments were $8.3 million and $15.4 million for the nine months ended September 27, 2024 and September 29, 2023, respectively. These payments included severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment and other costs in connection with the closure and optimization of facilities and product lines. Cash flows used in investing activities include $86.5 million of cash used for the acquisition of Sager S.A. and Linde Industries during the nine months ended September 27, 2024. Cash inflows provided by financing activities of $40.6 million during the nine months ended September 27, 2024 was primarily driven by proceeds from borrowings on long-term debt of $905.0 million partially offset by net repayment of borrowings on long-term debt of $834.1 million, payment of debt issuance costs of 10.4 million and cash dividends of $12.1 million. The new Senior Notes borrowing in April 2024 provided liquidity beyond the amount needed to refinance extinguished debt. Our Cash and cash equivalents as of September 27, 2024 included $231.9 million held in jurisdictions outside the United States. Cash repatriation of non-United States cash into the United States may be subject to withholding taxes, other local statutory restrictions and minority owner distributions. 36 Critical Accounting Policies and Estimates The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on our results of operations and financial position. We evaluate our estimates and judgments on an ongoing basis. Our estimates are based upon our historical experience, our evaluation of business and macroeconomic trends and information from other outside sources, as appropriate. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what our management anticipates, and different assumptions or estimates about the future could have a material impact on our results of operations and financial position. There have been no other significant additions or changes to the methods, estimates and judgments included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in the 2023 Form 10-K. 37